HOOSIERS AND HEALTH SAVINGS ACCOUNTS

March 2, 2010

Five years ago, Gov. Mitch Daniels (R) of Indiana requested that a consumer-directed health insurance option, or Health Savings Account (HSA), be added to the conventional plans then available to state employees.

In Indiana's HSA, the state deposits $2,750 per year into an account controlled by the employee, out of which he pays all his health bills; Indiana covers the premium for the plan.

The intent is that participants will become more cost-conscious and careful about overpayment or overutilization.

Unused funds in the account -- to date some $30 million or about $2,000 per employee and growing fast -- are the worker's permanent property.

For the very small number of employees (about 6 percent last year) who use their entire account balance, the state shares further health costs up to an out-of-pocket maximum of $8,000, after which the employee is completely protected.

The HSA option has proven highly popular, says Daniels. In the first year some 4 percent signed up for it; this year, over 70 percent of Indiana's 30,000 state workers chose it, by far the highest in public-sector America.

What Indiana and independent health care experts at Mercer Consulting have found, says Daniels, is that individually owned and directed health care coverage has a startlingly positive effect on costs for both employees and the state. In Indiana, for example:

State employees enrolled in the consumer-driven plan will save more than $8 million in 2010 compared to their coworkers in the old-fashioned preferred provider organization (PPO) alternative.

In the second straight year in which state employees have been forced to skip salary increases, workers switching to the HSA are adding thousands of dollars to their take-home pay (even if an employee had health issues and incurred the maximum out-of-pocket expenses, he would still be hundreds of dollars ahead).

The state is saving, too, says Daniels:

In a time of severe budgetary stress, Indiana will save at least $20 million in 2010 because of high HSA enrollment.

Mercer calculates the state's total costs are being reduced by 11 percent due solely to the HSA option.

Source: Mitch Daniels, "Hoosiers and Health Savings Accounts; An Indiana experiment that is reducing costs for the state and its employees," Wall Street Journal, March 1, 2010.